Insurance policies are confusing as hell, but the basic business proposition is pretty simple. For policyholders, it’s a way to get paid if something bad happens. And for insurers, it’s a way to make money charging people who avert disasters.
Given that many major insurance companies have stayed in business a century or more, it has clearly been a successful formula for those who write the policies. While other industries fall prey to the forces of creative disruption, giant insurers have largely managed to remain giant and profitable.
In the past few years, however, a surge of well-funded startups are scaling up insurance-focused offerings. Venture funding for insurance and insuretech companies hit all-time highs in 2018, according to Crunchbase data, with both global and U.S. totals reaching record levels. A space that once attracted a few hundred million in venture investment is now in the multiple billions.
Insuretech is seeing some massive rounds, too. And while traditional venture firms are active in the space, a surprisingly large portion of funding is coming from the corporate venture arms of the very same giant insurance companies startups are trying to disrupt.
“I think what it comes down to is insurance is viewed as a grand slam opportunity,” said Caribou Honig, chairman of the InsureTech Connect conference series and a former founding partner at venture firm QED Partners. “The venture community says prices are not cheap, but if we can find opportunities, this is a massive space.”
Below, we get up to speed on recent funding data, muse at the valuations, look at the active players and speculate about why we haven’t seen more exits.
A few more deals, but a lot more money
First, let’s talk about the rising cost of insurance deals.
People complain when their insurance payments go up a few bucks. That’s nothing compared to what insurance startup investors have to confront.
Valuations for sought-after startups are on a tear, and round sizes are ballooning as well. In all, U.S. insurance and insuretech startups raised just over $2.5 billion in 2018, more than double 2017 levels. Global investment, meanwhile, was just shy of $4 billion.
We lay out the funding spike in chart-form below, looking at round counts and investment totals in the U.S.